We first must understand market conditions in order to answer this correctly.

Choppy/Volatile Markets

In 2018 markets have become choppy. From February – May I have only opened max 6 positions at any one time. Those positions were .5% to 1% risk depending on conviction of each trade. That way if the market reversed quickly, I always have limited overall risk of 4-5% of my total account.

  • In choppy markets I look to have no more than 6 positions on at any one time.
  • Will typically open .5% risk for each trade. Sometimes 1% if I really like the trade.
  • Will raise stops quickly to breakeven and take partials quicker along the way.

Healthy trending markets

May has been a decent month and hopefully the bullish theme will continue in June and get us out of the choppy back and forth action we seen last few months. Going forward, if  SPY continues higher, I will adjust back to my trending rules. I will keep my risk per trade at 1% of my total account and will look to raise positions up to 10 with a max cutoff of 15 positions. Also, I will not be so quick to raise stops.

  • In healthy markets like 2016 and 2017 I would have up to 10 -15 positions.
  • Example: I have 6 positions open and looking to add more. Once a couple positions are profitable and I raise their stops to breakeven. I can then look to open more positions because my other ones are profitable and I get to limit my overall risk as well.
  • We sell partial into strength as the stock gets extended and look to trail rest.
  • Rinse and repeat after that.

A guide to placing stops

  • We look to place stops at recent pivot point lows.
  • Stops can be mental or stop market orders.
  • Mental stop means you keep an eye on the stock and once it hits the stop price you manually hit it out.
  • Our stops should be a stop market and not stop limit. The reason is if the stock gaps or swiftly moves down below your stop limit price, you may not get filled and end up taking a bigger loss. A stop market order will get you out at the next best price possible. We may encounter some slippage with stop market but not much we can do about this and is part of trading.

If you have any questions on this please let me know.